NONPROBATE TRANSFERS ON DEATH - Massachusetts

ARTICLE VI

NONPROBATE TRANSFERS ON DEATH

PART 1

PROVISIONS RELATING TO EFFECT OF DEATH

Section 6-101. [Nonprobate Transfers on Death.]

(a) A provision for a nonprobate transfer on death in an insurance policy, contract of employment, bond, mortgage promissory note, certificated or uncertificated security, account, agreement, custodial agreement, deposit agreement, compensation plan, pension plan, individual retirement plan, employee benefit plan, trust, conveyance, deed of gift, marital property agreement, or any other written instrument effective as a contract, gift, conveyance or trust, is nontestamentary.

(b) This subsection includes a written provision that:

(1) money or other benefits or property due to, controlled by, or owned by a decedent before death must be paid after the decedent's death to a person whom the decedent designates either in the instrument or in a separate writing, including a will, executed either before, after, or at the same time as the instrument if:

(i) the original document specifically provides for disposition in accordance with the later instrument; or

(ii) the later instrument has independent significance such as a contract, gift, conveyance, trust or will.

(2) money due or to become due under the instrument ceases to be payable in the event of death of the promisee or the promisor before payment or demand.

(c) This section does not limit rights of creditors under other laws of this commonwealth.

COMMENT

This section authorizes a variety of contractual arrangements that had sometimes been treated as testamentary in prior law. For example, most courts treated as testamentary a provision in a promissory note that if the payee died before making payment, the note should be paid to another named person; or a provision in a land contract that if the seller died before completing payment, the balance should be canceled and the property should belong to the vendee. These provisions often occurred in family arrangements. The result of holding such provisions testamentary was usually to invalidate them because not executed in accordance with the statute of wills. On the other hand, the same courts for years upheld beneficiary designations in life insurance contracts. Similar kinds of problems are arising in

VI - 1

regard to beneficiary designations in pension funds and under annuity contracts. However, there appear to be no policy reasons for continuing to treat these varied arrangements as testamentary. The revocable inter vivos trust, the multiple-party bank account, and United States government bonds payable on death to named beneficiaries all demonstrate that the evils envisioned if the statute of wills is not rigidly enforced simply do not materialize. Because these provisions often are part of a business transaction and are evidenced by a writing, the danger of fraud is largely eliminated.

Because the modes of transfer authorized by an instrument under this section are declared to be nontestamentary, the instrument does not have to be executed in compliance with the formalities for wills prescribed under Section 2-502; nor does the instrument have to be probated, nor does the personal representative have any power or duty with respect to the assets.

The sole purpose of this section is to prevent the transfers authorized here from being treated as testamentary. This section does not invalidate other arrangements by negative implication. Thus, this section does not speak to the phenomenon of the oral trust to hold property at death for named persons, an arrangement already generally enforceable under trust law.

The reference to a "marital property agreement" in the introductory portion of subsection (a) of Section 6-101 includes an agreement made during marriage as well as a premarital contract.

MASSACHUSETTS COMMENT This section expands upon the provisions of G.L. c. 167D ? 30 and c. 171 ? 36. Limitations have been added to subsection (b) (1) with the intent to maintain present Massachusetts law regarding the validity of testamentary dispositions outside the will.

PART 2

MULTIPLE-PERSON ACCOUNTS

SUBPART 1

DEFINITIONS AND GENERAL PROVISIONS

Section 6-201 to 6-206. [Reserved.]

SUBPART 2

OWNERSHIP AS BETWEEN PARTIES AND OTHERS

Section 6-211 to 6-216. [Reserved]

SUBPART 3

PROTECTION OF FINANCIAL INSTITUTIONS

Section 6-221 to 6-227. [Reserved]

VI - 2

PART 3

UNIFORM TOD SECURITY REGISTRATION ACT

Section 6-301. [Definitions.]

In this part:

(1) "Beneficiary form", a registration of a security which indicates the present owner of the security and the intention of the owner regarding the person who will become the owner of the security upon the death of the owner.

(2) "Register", including its derivatives, is to issue a certificate showing the ownership of a certificated security or, in the case of an uncertificated security, to initiate or transfer an account showing ownership of securities.

(3) "Registering entity", a person who originates or transfers a security title by registration, and includes a broker maintaining security accounts for customers and a transfer agent or other person acting for or as an issuer of securities.

(4) "Security", has the same meaning as provided in clause (k) of section 401 of chapter 110A and includes a security account.

(5) "Security account", (i) a reinvestment account associated with a security, a securities account with a broker, a cash balance in a brokerage account, cash, interest, earnings, or dividends earned or declared on a security in an account, a reinvestment account, or a brokerage account, whether or not credited to the account before the owner's death, or (ii) a cash balance or other property held for or due to the owner of a security as a replacement for or product of an account security, whether or not credited to the account before the owner's death.

MASSACHUSETTS COMMENT

This Part 3 was previously enacted as Chapter 377 of the Acts of 1998 creating a new G.L. c. 201D. It is incorporated here to preserve uniformity with enactments in other states. An effort has been made to preserve the particulars of Chapter 377 except where definitions would be repetitive of those in Article I.

COMMENT

The purpose of Part 3 (Uniform TOD Security Registration Act) is to allow the owner of securities to register the title in transfer-on-death (TOD) form. Mutual fund shares and accounts maintained by brokers and others to reflect a customer's holdings of securities (so-called "street accounts") are also covered. The legislation enables an issuer, transfer agent, broker, or other such intermediary to transfer the securities directly to the designated transferee on the owner's death. Thus, TOD registration achieves for securities a certain parity with existing TOD and pay-on-death (POD) facilities for bank deposits and other assets passing at death outside the probate process.

The TOD registration under this Part is designed to give the owner of securities who wishes to arrange for a nonprobate transfer at death an alternative to the frequently troublesome joint tenancy form of title. Because joint tenancy registration of securities normally entails a sharing of lifetime entitlement and control, it works satisfactorily only so long as the co-owners cooperate. Difficulties arise when co-owners fall into disagreement, or when one becomes afflicted or insolvent.

VI - 3

Use of the TOD registration form encouraged by this legislation has no effect on the registered owner's full control of the affected security during his or her lifetime. A TOD designation and any beneficiary interest arising under the designation ends whenever the registered asset is transferred, or whenever the owner otherwise complies with the issuer's conditions for changing the title form of the investment. The Part recognizes, in Section 6-302, that co-owners with right of survivorship may be registered as owners together with a TOD beneficiary designated to take if the registration remains unchanged until the beneficiary survives the joint owners. In such a case, the survivor of the joint owners has full control of the asset and may change the registration form as he or she sees fit after the other's death.

Implementation of the Part is wholly optional with issuers. The drafting committee received the benefit of considerable advice and assistance from representatives of the mutual fund and stock transfer industries during the course of its three years of preparatory work. Accordingly, it is believed that this Part takes full account of the practical requirements for efficient transfer within the securities industry.

Section 6-303 invites application of the legislation to locally owned securities though the statute may not have been locally enacted, so long as the Part or similar legislation is in force in a jurisdiction of the issuer or transfer agent. Thus, if the principal jurisdictions in which securities issuers and transfer agents are sited enact the measure, its benefits will become generally available to persons domiciled in states that do not at once enact the statute.

The legislation has been drafted as a separate Part because securities merit a distinct statutory regime, because a different principle has governed concurrent ownership of securities. By virtue either of statute or of account terms (contract), multiple-party bank accounts allow any one cotenant to consume or transfer account balances. See R. Brown, The Law of Personal Property ? 65, at 217 (2d ed. 1955); Langbein, The Nonprobate Revolution and the Future of the Law of Succession, 97 Harv. L. Rev. 1108, 1112 (1984). The rule for securities, however, has been the rule that applies to real property: all cotenants must act together in transferring the securities. This difference in the legal regime reflects differences in function among the types of assets. Multiple-party bank accounts typically arise as convenience accounts, to facilitate frequent small transactions, often on an agency basis (as when spouses or relatives share an account). Securities resemble real estate in that the values are typically large and the transactions relatively infrequent, which is why the legal regime requires the concurrence of all concurrent owners for transfers affecting such assets.

Recently, of course, this distinction between bank accounts and securities has begun to crumble. Banks are offering certificates of deposit of large value under the same account forms that were devised for low-value convenience accounts. Meanwhile, brokerage houses with their so-called cash management accounts and mutual funds with their money market accounts have rendered securities subject to small recurrent transactions. In the latest developments, even the line between real estate and bank accounts is becoming indistinct, as the "home equity line of credit" creates a check-writing conduit to real estate values.

Nevertheless, even though new forms of contract have rendered the boundaries between securities and bank accounts less firm, the distinction seems intuitively correct for statutory default rules. True co-owners of securities, like owners of realty, should act together in transferring the asset.

The joint bank account and the Totten trust originated in ambiguous lifetime ownership forms. In the securities field, by contrast, we start with unambiguous lifetime ownership rules. The sole purpose of the present statute is to facilitate a nonprobate TOD mechanism as an option for those owners.

For a comprehensive discussion of the issues entailed in this legislation, see Wellman, Transfer-on-Death Securities Registration: A New Title Form, 21 Ga. L. Rev. 789 (1987). "Security" is defined as provided in UCC ? 8-102 and includes shares of mutual funds and other investment companies.

The defined term "security account" is not intended to include securities held in the name of a bank or similar institution as nominee for the benefit of a trust.

VI - 4

"Survive" is not defined. No effort is made in this Part to define survival as it is for purposes of intestate succession in UPC ? 2-104 which requires survival by an heir of the ancestor for 120 hours. For purposes of this part, survive is used in its common law sense of outliving another for any time interval no matter how brief. The drafting committee sought to avoid imposition of a new and unfamiliar meaning of the term on intermediaries familiar with the meaning of "survive" in joint tenancy registrations.

Section 6-302. [Registration in Beneficiary Form; Sole or Joint Tenancy Ownership.]

Only individuals whose registration of a security shows sole ownership by one individual or multiple ownership by two or more with rights of survivorship, rather than as tenants in common, may obtain registration in beneficiary form. Multiple owners of a security registered in beneficiary form hold as joint tenants with rights of survivorship, or as tenants by the entireties, and not as tenants in common.

COMMENT

This section is designed to prevent co-owners from designating any death beneficiary other than one who is to take only upon survival of all co-owners. It coerces co-owning registrants to signal whether they hold as joint tenants with right of survivorship (JT TEN), or as tenants by the entireties (T ENT). Also, it imposes survivorship on co-owners holding in a beneficiary form that fails to specify a survivorship form of holding. Tenancy in common otherwise than in a survivorship setting is negated for registration in beneficiary form because persons desiring to signal independent death beneficiaries for each individual's fractional interest in a co-owned security normally will split their holding into separate registrations of the number of units previously constituting their fractional share. Once divided, each can name his or her own choice of death beneficiary.

The term "individuals," as used in this section, limits those who may register as owner or co-owner of a security in beneficiary form to natural persons. However, the section does not restrict individuals using this ownership form as to their choice of death beneficiary. The definition of "beneficiary form" in Section 6-301 indicates that any "person" may be designated beneficiary in a registration in beneficiary form. "Person" is defined so that a church, trust company, family corporation, or other entity, as well as any individual, may be designated as a beneficiary. Section 1-201(35).

Section 6-303. [Registration in Beneficiary Form; Applicable Law.]

A security may be registered in beneficiary form if the form is authorized by this Part or a similar law of the state of organization of the issuer or registering entity, the location of the registering entity's principal office, the office of its transfer agent or its office making the registration, or by this part or a similar law of the state listed as the owner's address at the time of registration. A registration governed by the law of a jurisdiction in which this Part or similar law is not in force or was not in force when a registration in beneficiary form was made is nevertheless presumed to be valid and authorized as a matter of contract law.

COMMENT

This section encourages registrations in beneficiary form to be made whenever a state with which either of the parties to a registration has contact has enacted this or a similar statute. Thus, a registration in beneficiary form of X Company shares might rely on an enactment of this Act in X Company's state of incorporation, or in the state of incorporation of X Company's transfer agent. Or, an enactment by the state of the issuer's principal office, the transfer agent's principal office, or of the issuer's office making the registration also would validate the registration. An enactment of the state of the registering owner's address at time of registration also might be used for validation purposes.

VI - 5

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download